Biggest EU investors are partly aligned with Paris Agreement but more efforts needed

The EU's biggest investors are partly aligned with the Paris agreement's climate target of keeping global warming well under 2°C but still invest too much in coal, the first ever such analysis, carried out by WWF, shows. Lack of disclosure on climate risk remains an element of concern that will have to be addressed by the upcoming G-20 Summit in Hamburg and the EU.

WWF’s report shows that 29 of Europe’s major asset owners, mainly pension funds, from the Netherlands, Denmark, Sweden, Norway and Finland have already implemented changes to bring their public equity portfolio more in line with the well under 2°C climate goal. Almost all of them have cut funding to coal mining; however many of them are investing too much in coal power and still lagging behind on renewable power.

“Ensuring capital is invested in companies that contribute to a climate-safe future is key to reaching the Paris Agreement targets, reducing climate-related financial risks and maximising returns. Some asset owners are showing leadership, but more needs to be done to reallocate investments from coal to renewable power.” commented Sebastien Godinot, Economist at WWF European Policy Office.

WWF has contacted 80 of Europe’s largest asset owners representing USD 13 trillion (EUR 11.7 tn) in total assets, but only 29, worth USD 2.2 trillion (EUR 1.9 tn) have agreed to disclose their data so far. More efforts will be needed to improve the lack of disclosure of holdings data, in part due to a current lack of regulation requiring so in some countries.

“Too many asset owners are still not disclosing how their capital investments are aligned with the Paris Agreement. We call on the G20 leaders meeting soon in Hamburg to improve this, by adopting the recommendations on climate-related disclosures of the designated Financial Stability Board’s Task Force. These will have to be made mandatory by the EU and member states across the Union and nationally - a crucial move towards making climate alignment assessments by investors the norm,” added Godinot.

Public equity: the asset class where asset owners and other investors can buy ownership in shares of a company through a public market (stock exchange)

2°C alignment: In this research, alignment with the 2°C target means that an asset owners’ equity portfolio holds companies that, put together, own assets (e.g. megawatt of power plants) that are compatible with the forecasts of the IEA 2°C scenario for coal mining, coal power and renewable power for the year 2020.

Notes for the editor:

The list of asset owners: WWF approached 80 of the 100 largest European asset owners in twelve countries - Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain, Sweden, Switzerland and UK (Full list available in the report) - for the first ever comprehensive research on how European asset owners’ equity portfolios are aligned with the 2°C scenario and technology roadmaps of the International Energy Agency (IEA) for coal mining, coal power and renewable power. These 80 asset owners - defined as pension funds, insurance companies and sovereign wealth funds - represent $13 trillion (11.7 trill euro) of combined assets, more than half of all assets of European institutional investors. The current analysis is based on the first 29 that have provided data, and WWF is collaborating with all the others to ensure more data will be made available in the next months.

The analysis: Using the Sustainable Energy Investment Metrics (SEIM) tool, the report compares each asset owner’s holdings with the IEA 2°C scenario for the year 2020, going beyond carbon footprinting by assessing technology exposure. The analysis is based on the actual capacity and production plans of each company in portfolio (e.g. tonnes of coal mined per annum or coal/renewable power capacity), using physical asset level data for key sectors.

Key results: On coal mining, almost all the 29 asset owners are favourably positioned when compared with the IEA 2°C scenario by 2020 (meaning they already underweight this technology in their portfolio in comparison to the IEA benchmark). On coal power, nearly half the asset owners are misaligned with this scenario. On renewable power, more than half the asset owners are favourably positioned relative to that scenario, some by a significant amount. Almost all of the 29 asset owners are aligned with the IEA 2°C benchmark by 2020 for at least one of the three technologies.